Part III. Administrative, Procedural, and Miscellaneous

FURTHER INFORMATION

For further information regarding this notice, contact Johanna Som de Cerff at (202) 622–3980 (not a toll-free call).

2002 Section 43 Inflation Adjustment

Notice 2002–53

Section 43(b)(3)(B) of the Internal Revenue Code requires the Secretary to publish an inflation adjustment factor. The enhanced oil recovery credit under § 43 for any taxable year is reduced if the “reference price,” determined under § 29(d)(2)(C), for the calendar year preceding the calendar year in which the taxable year begins is greater than $28 multiplied by the inflation adjustment factor for that year.

The term “inflation adjustment factor” means, with respect to any calendar year, a fraction the numerator of which is the GNP implicit price deflator for the preceding calendar year and the denominator of which is the GNP implicit price deflator for 1990.

Because the reference price for the 2001 calendar year ($21.86) does not exceed $28 multiplied by the inflation adjustment factor for the 2002 calendar year, the enhanced oil recovery credit for qualified costs paid or incurred in 2002 is determined without regard to the phaseout for crude oil price increases.

Table 1 contains the GNP implicit price deflator used for the 2002 calendar year, as well as the previously published GNP implicit price deflators used for the 1991 through 2001 calendar years.

Clarification of Proposed Regulations Relating to Tax- Exempt Bonds Issued by State or Local Governments (REG–113526–98; REG–105369–00)

Notice 2002–52

PURPOSE

On April 17, 2002, the Treasury Department and the Internal Revenue Service published in the Federal Register proposed regulations under sections 141 and 148 of the Internal Revenue Code relating to tax-exempt bonds issued by state or local governments (REG– 113526–98; REG–105369–00, 2002–18 I.R.B. 828) (the proposed regulations). This notice clarifies the application of certain provisions of the proposed regulations relating to natural gas prepayments.

BACKGROUND

The proposed regulations propose to amend the definition of private loan in § 1.141–5(c) and the definition of investment-type property in § 1.148–1(e). In particular, the proposed regulations address the circumstances in which a prepayment for property or services will be treated as a loan for purposes of the private loan financing test of section 141(c), or will give rise to investment-type property under section 148(b)(2)(D). Among other things, the proposed regulations add an exception to the definitions of private loan and investment-type property for natural gas prepayments that meet certain requirements set forth in § 1.148– 1(e)(2)(ii) of the proposed regulations. Section 1.148–1(e)(2)(ii)(C) of the proposed regulations states that a transaction will not fail to qualify for this excep

tion by reason of any commodity swap contract that may be entered into between the issuer and an unrelated party (other than the gas supplier), or between the gas supplier and an unrelated party (other than the issuer), so long as each swap contract is an independent contract. For this purpose, § 1.148–1(e)(2)(ii)(C) provides that a swap contract is an independent contract if the obligation of each party to perform under the swap contract is not dependent on performance by any person (other than the other party to the swap contract) under another contract (for example, a gas supply contract or another swap contract).

Questions have arisen regarding the characterization in § 1.148–1(e)(2)(ii)(C) of when a swap contract will constitute an independent contract. Comments have been received indicating that the practices and policies of certain state and local governments require that if an issuer enters into a commodity swap contract, the swap contract must terminate if the supplier of the commodity being hedged fails to deliver the commodity to the issuer.

CLARIFICATION OF PROPOSED REGULATIONS

For purposes of § 1.148–1(e)(2)(ii)(C) of the proposed regulations, a natural gas commodity swap contract will not fail to be an independent contract solely because the swap contract may terminate in the event of a failure of a gas supplier to deliver gas for which the swap contract is a hedge. Comments are requested on the limitations on commodity swap contracts contained in § 1.148–1(e)(2)(ii)(C) of the proposed regulations.

Issuers may rely on this notice as if it were included in the proposed regulations.

2002–30 I.R.B. 187 July 29, 2002

Notice 2002–53 TABLE 1

GNP IMPLICIT PRICE DEFLATORS

Calendar Year GNP Implicit Price Deflator

1990 112.9 (used for 1991) 1991 117.0 (used for 1992) 1992 120.9 (used for 1993) 1993 124.1 (used for 1994) 1994 126.0 (used for 1995) 1995 107.5 (used for 1996)* 1996 109.7 (used for 1997) 1997 112.35 (used for 1998)** 1998 112.64 (used for 1999) 1999 104.59 (used for 2000)*** 2000 106.89 (used for 2001) 2001 109.31 (used for 2002)

• Beginning in 1995, the GNP implicit price deflator was rebased relative to 1992. The 1990 GNP implicit price deflator used to compute the 1996 § 43 inflation adjustment factor is 93.6.

** Beginning in 1997, two digits follow the decimal point in the GNP implicit price deflator. The 1990 GNP price deflator used to compute the 1998 § 43 inflation adjustment factor is 93.63.

*** Beginning in 1999, the GNP implicit price deflator was rebased relative to 1996. The 1990 GNP implicit price deflator used to compute the 2000 § 43 inflation adjustment factor is 86.53.

Table 2 contains the inflation adjustment factor and the phase-out amount for taxable years beginning in the 2002 cal

endar year as well as the previously published inflation adjustment factors and phase-out amounts for taxable years

Notice 2002–53 TABLE 2

INFLATION ADJUSTMENT FACTORS AND

PHASE-OUT AMOUNTS

beginning in 1991 through 2001 calendar years.

Phase-out

Amount

Calendar

Year

Inflation Adjustment

Factor

1991 1.0000 0 1992 1.0363 0 1993 1.0708 0 1994 1.0992 0 1995 1.1160 0 1996 1.1485 0 1997 1.1720 0 1998 1.1999 0 1999 1.2030 0 2000 1.2087 0 2001 1.2353 0 2002 1.2633 0

July 29, 2002 188 2002–30 I.R.B.

DRAFTING INFORMATION

The principal author of this notice is Jaime Park of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Ms. Park at (202) 622-3120 (not a toll-free call).

2002 Marginal Production Rates

Notice 2002–54

Section 613A(c)(6)(C) of the Internal Revenue Code defines the term “applicable percentage” for purposes of determining percentage depletion for oil and gas produced from marginal properties. The applicable percentage is the percentage (not greater than 25 percent) equal to the sum of 15 percent, plus one percent

Notice 2002–54 Table 1

age point for each whole dollar by which $20 exceeds the reference price (determined under § 29(d)(2)(C)) for crude oil for the calendar year preceding the calendar year in which the taxable year begins. The reference price determined under § 29(d)(2)(C) for the 2001 calendar year is $21.86.

Table 1 contains the applicable percentages for marginal production for taxable years beginning in calendar years 1991 through 2002.

APPLICABLE PERCENTAGE FOR MARGINAL PRODUCTION

Calendar Year Applicable Percentage

1991 15 percent

1992 18 percent

1993 19 percent

1994 20 percent

1995 21 percent

1996 20 percent

1997 16 percent

1998 17 percent

1999 24 percent

2000 19 percent

2001 15 percent

2002 15 percent

The principal author of this notice is Jaime Park of the Office of Associate

Chief Counsel (Passthroughs and Special Industries). For further information

regarding this notice, contact Ms. Park at (202) 622-3120 (not a toll-free call).

2002–30 I.R.B. 189 July 29, 2002